With the Q3 earnings set to begin this week and a crucial jobs report due, investors’ fear of failure on both fronts led them to sell stocks and run to the traditional safe havens of the U.S. dollar and Treasurys yesterday. Alcoa Inc. (NYSE: AA), which is traditionally the first of the Dow 30 stocks to report earnings, fell 2.5%. AA will report earnings on Thursday.
Financial stocks were hard hit as a result of a Justice Department lawsuit against American Express Company (NYSE: AXP), with the sector falling 6.5%. The government accused AXP of imposing rules on merchants that are “anti-competitive.” Both Visa Inc. (NYSE: V) and MasterCard Incorporated (NYSE: MA) closed fractionally lower since they had agreed to settle the government’s claims.
Tech stocks were among the worst performers. Microsoft Corporation (NASDAQ: MSFT) led the charge lower, off 1.9%, following a rating cut in by Goldman Sachs Group, Inc. (NYSE: GS) from “buy” to “neutral,” and Intel Corporation (NASDAQ: INTC) fell 2.3%. As a result of the two tech giants taking big hits, the technology-laden Nasdaq fell 1.1%.
Mergers and acquisitions were in the news on Monday. Sanofi-Aventis SA (NYSE: SNY) offered to acquire Genzyme Corporation (NASDAQ: GENZ) for $69, Microsemi Corporation (NASDAQ: MSCC) offered Actel Corporation (NASDAQ: ACTL) $20.88 per share, and Sara Lee Corp. (NYSE: SLE) rejected an offer from KKR Financial Holdings LLC (NYSE: KKR).
Factory orders for August fell 0.5% versus an expected decline of 0.4%. And pending home sales increased by 4.3% versus an estimate of 1%.
The 10-year Treasury note’s yield fell to 2.481%, and the two-year fell to a record low of 0.407%. The greenback rose against both the euro and the yen, and was up 0.5% versus a basket of six currencies. The euro fell to $1.3689 versus $1.3784 on Friday.
At the close, the Dow Jones Industrial Average was off 78 points to 10,751, the S&P 500 fell 9 points to 1,137, and the Nasdaq dropped 26 points to 2,345.
The NYSE traded 943 million shares, and the Nasdaq exchanged 521 million shares. On both exchanges decliners were ahead by advancers by 2.75-to-1.
Crude oil for November delivery fell 11 cents to $81.47 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 71 cents to $56.10.
December gold fell $1 to settle at $1,316.80 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 3.49 points, closing at 196.77.
What the Markets Are Saying
During the last two weeks, the S&P 500 has established a tight trading range with support at 1,131 and resistance at 1,150. On Thursday, the index penetrated 1,150, but then quickly sold off on a daily reversal. This was the second reversal within this tight range and puts pressure on the bulls since a break in the support line (1,130) could turn into a very quick fall to the 200-day moving average, now at 1,117.
The Dow’s trading range is similar with support at 10,700 and resistance at 10,890. But the Nasdaq’s range is a bit more ragged with support at around 2,335 and resistance at 2,385.
Since the Nasdaq has led the market up since the August bottom, it could likely lead the market down. So we should focus on the Nasdaq for clues as to which direction the general trend might take. Yesterday, while the Dow was off 0.72% and the S&P 500 fell 0.8%, the Nasdaq was hit for a 1.11% loss — not a good sign for the bulls.
On Friday, I opined that the “sell in May and go away” indicator expires on or about Halloween, thus it is sometimes called the “Halloween indicator.” As a result, some of our readers interpreted this to mean that I am turning more bullish.
As I have often said, “I am neither bullish nor bearish, just pragmatic.” By watching our indicators, I try to read the market for what it is telling us, so I don’t “predict,” but rather “respond” to the market’s signals. Sometimes I’m led astray but, most often, if I wait long enough, the market finally comes through with a clear signal.
Patience is a key to investment success, and part of that process is to be aware of what happened yesterday, but also what might occur in the future. The expiration of the Halloween indicator is a “what might occur in the future” bullish indicator. And there is another event — the election — that could have a major impact on stock prices, and that too could be bullish.
With both events in mind, we should continue to monitor our internal and sentiment indicators, and if by the end of October, they have fallen to an “oversold” status, we might consider a more aggressive program on the buy side.
In investments, as well as in life, is it best to exercise patience, avoid predictions and always be aware of your changing surroundings.
With that in mind, consider the strong performance of Ford Motor Company (NYSE: F) on a pretty lousy day for the market. And it just so happens that Ford is our Trade of the Day.
Today’s Trading Landscape
Earnings to be reported before the opening include: Wolverine.
Earnings to be reported after the close include: Diamond Foods, Team and YUM! Brands.
Economic reports due: ICSC-Goldman Sachs store sales, Redbook and ISM non-manufacturing index (the consensus expects 52).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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